2022 (8) TMI 570 - AT - Income Tax

Revision u/s 263 by CIT - profit derived from purchase and sale of shares - profit derived from share transactions to be assessed under the head income from business or profession OR 'capital gain' - AO noticed that the assessee has derived short term capital gain from investment activity and accordingly, assessed short term capital gain u/s.111A and levied tax @ 15% - HELD THAT - If we examine reasons given by the PCIT, we find there is no merit in reasons given by the PCIT to term the assessment order as erroneous, insofar as it is pre-judicial to the interests of the Revenue, because very same issue of profits derived from share transactions was subject matter of 143(3) assessment proceedings before the Assessing Officer, where the AO has discussed the issue in the assessment order dated 15.12.2017 and after considering relevant details filed by the assessee, assessed profits under the head short term capital gain and further determined profit derived for the year at Rs.10 lakhs and levied 15% tax in terms of section 111A of the Income Tax Act, 1961. When the AO has taken one possible view, after considering relevant materials, then there is no scope for the PCIT to assume jurisdiction u/s.263 of the Act and set aside the assessment order, because the PCIT can assume jurisdiction in a case, where there is lack of inquiry, however, the PCIT cannot set aside the assessment order for inadequate inquiry. In this case, it is abundantly clear that the Assessing Officer has verified the issue and taken one possible view. There is no scope for the PCIT to revise assessment order u/s.263 because the PCIT has failed to make out a case of erroneous order passed by the AO, which caused prejudice to the interest of the Revenue, which is precondition for invoking jurisdiction u/s.263 of the Income Tax Act, 1961 as held in the case of Malabar Industrial Co. 2000 (2) TMI 10 - SUPREME COURT . Hence, we quash order passed by the learned PCIT u/s.263 - Decided in favour of assessee.

Summary

Issues:
Jurisdiction of Principal Commissioner under section 263 of the Income Tax Act, 1961 to revise assessment order regarding profit derived from share transactions.

Detailed Analysis:

Issue 1: Jurisdiction of Principal Commissioner under section 263
The appeal challenged the order passed by the Principal Commissioner of Income Tax, Chennai-8 under section 263 of the Income Tax Act, 1961 for the assessment year 2015-16. The case involved the classification of profits derived from share transactions by the assessee, who was engaged in investments into equity shares. The Assessing Officer initially assessed short term capital gain under section 111A of the Act, levying tax at 15%. Subsequently, the Principal Commissioner issued a show-cause notice under section 263, contending that the profits should have been assessed under the head 'income from business or profession'. The Principal Commissioner set aside the assessment order, directing a re-examination of the issue.

Analysis:
The Principal Commissioner's decision was based on the discrepancy between the assessee's reporting of share transactions as business turnover and the Assessing Officer's assessment of profits under the head 'capital gains'. The contention was that the Assessing Officer should have assessed profits under the head 'income from business'. The assessee argued that the Assessing Officer had considered the issue and assessed profits under 'short term capital gain' after due inquiry. The Tribunal noted that the Assessing Officer had taken a possible view after considering relevant details, and there was no lack of inquiry. The Tribunal referenced the requirement for the Principal Commissioner to establish an erroneous order prejudicial to the Revenue, as per legal precedent. As the Principal Commissioner failed to demonstrate such error or prejudice, the Tribunal quashed the order passed under section 263.

Conclusion:
The Tribunal allowed the appeal, emphasizing that the Principal Commissioner lacked jurisdiction under section 263 to revise the assessment order. The decision highlighted the importance of establishing an erroneous order causing prejudice to the Revenue for invoking jurisdiction under section 263 of the Income Tax Act, 1961. The Tribunal's analysis focused on the adequacy of the Assessing Officer's inquiry and the permissibility of different views on the same issue within the assessment process.